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Energy and Economic Growth

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  • David I. Stern

    ()
    (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

  • Cutler J. Cleveland

    ()
    (Department of Geography and Center for Energy and Environmental Studies, Boston University, Boston, MA 02215, USA)

Abstract

Physical theory shows that energy is necessary for economic production and therefore growth but the mainstream theory of economic growth, except for specialized resource economics models, pays no attention to the role of energy. This paper reviews the relevant biophysical theory, mainstream and resource economics models of growth, the critiques of mainstream models, and the various mechanisms that can weaken the links between energy and growth. Finally we review the empirical literature that finds that energy used per unit of economic output has declined, but that this is to a large extent due to a shift from poorer quality fuels such as coal to the use of higher quality fuels, and especially electricity. Furthermore, time series analysis shows that energy and GDP cointegrate and energy use Granger causes GDP when additional variables such as energy prices or other production inputs are included. As a result, prospects for further large reductions in energy intensity seem limited.

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Bibliographic Info

Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0410.

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Date of creation: Mar 2004
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Handle: RePEc:rpi:rpiwpe:0410

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  1. The Role of Energy in Economic Growth
    by David Stern in Stochastic Trend on 2010-12-01 05:44:00
  2. Serializing Energy and Growth Review Paper
    by David Stern in Stochastic Trend on 2010-04-11 06:52:00
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